Readers' Corner: Taxation

Kuldip Kumar, partner and leader, Personal Tax, PwC India, answers your questions

What perks can I ask for in my salary structure to reduce my tax benefit? I am in the process of changing my job and I want to structure my new package. 

As per the provisions of the Income Tax Act, 1961 (“Act”) salary and bonus are fully taxable but allowances and perquisites are either fully taxable or taxed concessionally in accordance with the relevant rules specified in this regard. Leave travel assistance, house rent allowance, conveyance allowance, children’s allowance, coverage in group medical health insurance, reimbursement of routine medical expenses, provision of car for personal or official use, contribution to NPS, reimbursement of telephone bills, meal coupons, pick and drop facility, employer’s contribution to provident fund, etc, are some of the benefits that are commonly allowed by employers, depending on the nature of business they are in and the level of employees. Further, these benefits are tax free or taxed concesionally subject to certain limits and conditions as specified in the tax laws. There is also general policy framework adopted by the employers in accordance with which these benefits are allowed. Therefore, you may find out more details from your prospective employer as to what they have to offer which may help you to save taxes. 

My Public Provident Fund (PPF) account will mature this year. If I open another one, will it allow me to claim tax exemption on that? 

A PPF account comes with a lock in of 15 years. Thereafter, you have the option to extend the same three times after intervals of five years each. In other words, PPF account can be extended upon maturity for a maximum period of 15 years and, therefore, extension happening in year 15, 20 and 25. This provides the flexibility to make the full withdrawal once the account matures after each five year period.  Therefore, you may like to extend your PPF account upon maturity. If you will close the existing account on maturity and open another one, there would be a lock-in period of 15 years.  Once the account is extended, contributions made during the extended period will continue to get the tax exemption up to  Rs 150,000 and interest earned would also be exempt. 

The writer is partner and leader, personal tax, PwC India. The views expressed are his own. Send your queries to yourmoney@bsmail.in